1998 (2) TMI 106 - HC - Wealth-tax

Issues Involved:
1. Whether the amounts of refund of income-tax and other direct taxes for various assessment years prior to the assessment year 1981-82, to which the assessees became entitled as a result of appellate orders passed subsequent to the valuation date relevant to the assessment year 1981-82, were 'assets' belonging to the assessees on the valuation date within the meaning of section 2(m) of the Wealth Tax Act, 1957.
2. Whether the amounts lying to the credit of the applicant in the Compulsory Deposit Scheme (Income-tax Payers') Act, 1974, is an 'asset' within the meaning of section 2(e)(2)(ii) of the Wealth Tax Act, 1957.

Detailed Analysis:

Issue 1: Refund of Income-Tax and Other Direct Taxes as 'Assets'

The primary question was whether refunds of income-tax and other direct taxes, which became due to the assessees as a result of appellate orders passed after the valuation date, constituted an asset within the meaning of section 2(m) of the Wealth Tax Act, 1957, and thus formed part of the assessee's net wealth on the relevant valuation date.

The Wealth Tax Officer (WTO) held that such refunds should be considered assets, relying on the Supreme Court's judgment in CWT vs. K.S.N. Bhatt, which stated that liabilities towards income-tax, wealth-tax, and gift-tax should be deducted as debts due, even if assessments are finalized after the valuation date. The WTO argued that the converse must also be true: amounts refundable due to appellate orders should be considered assets retrospectively on the valuation date.

The assessees appealed to the Commissioner of Wealth Tax (Appeals) [CWT(A)], who directed the WTO to exclude such refunds from the net wealth. The Revenue then appealed to the Tribunal, which upheld the WTO's view, leading to the present reference.

The Court analyzed the definition of "net wealth" under section 2(m) and the term "asset" under section 2(e) of the Act. It noted that the net wealth comprises all assets belonging to the assessee in excess of the aggregate value of debts owed on the valuation date. The Court emphasized that the asset should be in existence or there should be a right to receive it on the valuation date.

The Court held that the mere possibility of getting a refund in the future does not constitute an asset. The amounts paid as tax in response to a notice of demand cease to be assets "belonging to the assessee" once paid. Therefore, the refunds received after the valuation date cannot be included in the net wealth on the valuation date.

The Court concluded that the amounts in question received as refunds after the valuation date do not constitute assets within the meaning of section 2(e) and thus cannot be included in the net wealth. Accordingly, the Court answered the first question in the affirmative, in favor of the assessees and against the Revenue.

Issue 2: Compulsory Deposit Scheme as 'Asset'

The second question was whether amounts in the Compulsory Deposit Scheme (Income-tax Payers') Act, 1974, are assets within the meaning of section 2(e)(2)(ii) of the Wealth Tax Act, 1957.

The Court referred to its earlier decision in CWT vs. Seth Lalit Modi, where it was held that such deposits are not annuities within the meaning of section 2(e)(2)(ii) and are assets to be included in the net wealth of the assessee.

Following the reasoning in the Seth Lalit Modi case, the Court answered the second question in the negative, in favor of the Revenue and against the assessees.

Conclusion:

The Court answered the references accordingly, with no order as to costs:

1. The amounts of refund of income-tax and other direct taxes for various assessment years prior to the assessment year 1981-82, to which the assessees became entitled as a result of appellate orders passed subsequent to the valuation date relevant to the assessment year 1981-82, are not 'assets' belonging to the assessees on the valuation date within the meaning of section 2(m) of the Wealth Tax Act, 1957.
2. The amounts lying to the credit of the applicant in the Compulsory Deposit Scheme (Income-tax Payers') Act, 1974, are 'assets' within the meaning of section 2(e)(2)(ii) of the Wealth Tax Act, 1957.

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